CFI ANALYSIS OF 18 MONTH SECTION 527 FUNDRAISING REPORTS TO IRS

527 Political Organizations Raising Money at 2002 Pace, Down From 2004

Section 527 political organizations that are primarily or substantially involved in federal elections are raising unlimited
contributions at the same pace as they did during the 2002 congressional election cycle. But their fundraising falls far
below what they achieved in the 2004 combined presidential and congressional elections. The most prominent 527s from 2004,
including America Coming Together, The Media Fund, Moveon.Org Voter Fund, Swift Boat Vets and POWs for Truth, and Progress
for America Voter Fund, were basically candidate or party-oriented and have become dormant, although they could be
reactivated quickly (MoveOn.org now works through another political committee; Progress for America Voter Fund was
active in 2005 but has raised nothing in 2006). As in 2002, the overwhelming majority of 527 funds are being raised
by more issue-oriented, established interest groups although these also have partisan preferences. More than 2004's
stars, these groups utilize a variety of enduring campaign finance vehicles.
Beyond 527s they tend to employ federal
PACs that can accept only limited, disclosed political contributions and/or Section 501(c)(4),(5) or (6) tax-exempt
advocacy organizations that can receive unlimited, undisclosed donations so long as elections are not their "primary"
activities. Click here to read CFI's recent report on nonprofit
interest groups' election activities. Finally, a
significant political innovation this year has been the use of a private multimillion dollar company, one headed by a
leading Democratic Party strategist and receiving major funding from the top
527 donor in 2004, to enhance the
increasingly coordinated efforts of pro-Democratic 527s, 501(c)s and Political Action Committees (PACs).

Table
1
shows that during the first 18 months of this 24 month fundraising
cycle, federal 527s raised $68 million, compared to $65 million in 2002
(omitting $22 million raised by soft money branches of congressional
leadership PACs that were subsequently outlawed by the Bipartisan
Campaign Reform Act) and $165 million in 2004. So this cycle's 527s are
on pace to approximately match the 2002 cycle's $115 million total
(sans the leadership PACs). But unless new trends develop between July
and the November election,
527 fundraising will fall well below the record $426 million of 2004.
Thus far, Democratic-oriented 527s hold a 3.5-1 financial advantage,
similar to the final partisan ratios of 2002 and 2004.

Looking at 527s that have raised at least $200,000 thus far, Table
1
also shows that 14 of the 27 Democratic-oriented ones (including 9 of
the top 12) have associated PACs, an indication of their broad,
enduring interest in federal elections. The same is true for 5 of the 8
Republican-oriented 527s. Groups that focus exclusively (or almost
exclusively) on amassing soft money via 527s to bolster a particular
candidate or party -- such as the Democratic-oriented Senate
Accountability Project and Lantern Project this cycle -- are less
prominent financially in
2006 than similar groups were in 2004.

The figures in Table
1
do not include $1,952,000 raised by a 527 named Citizens to End
Corruption which waged an unsuccessful ballot initiative campaign last
year to change the method of legislative redistricting and election
administration in Ohio for both state and federal elections. This
campaign was funded by many of the leading donors to
Democratic-oriented federal 527s in 2004. The organization, uncovered
by the respected website Political Moneyline, invoked an
exemption in the Section 527 law to report only to Ohio state
authorities. However the exemption applies only to groups "solely"
aiding the election of "any individual to any State or local public
office.or political organization," which was arguably not the case here
since the initiative would also have influenced federal elections. This
example underlines the need for closer IRS monitoring of exemption
claims.

Many interest groups, with or without 527s and PACs, are also funding
2006 election activities via their 501(c) advocacy organizations. For
example, the U.S. Chamber of Commerce, a 501(c)(6) business league,
recently announced plans to spend an "eight figure budget", i.e. at
least $10 million and perhaps much more, "the largest thing we've ever
done," in 30 House and Senate races. This campaign will mainly, though
not exclusively, support Republican candidates. It will include media
issue ads during the congressional August recess as well as voter
registration and mobilization activities aimed at members' employees.1
Another 501(c)(6) organization, Americans for Job Security, which says
it has spent $6-7 million per cycle in recent federal election years,
has again been active with pro-Republican media ads in a key Senate
race in Pennsylvania.2

On the Democratic side, the 501(c)(5) AFL-CIO labor federation has
stated that it will spend $40 million on the congressional campaign --
$5 million more than in 2002 -- to mobilize its members in 15 Senate
and 40 House races against "radical antiworker [Republican] majorities
that control both bodies."3
In addition, Bloomberg News recently reported on a new
501(c)(4) organization called Communities United, led by officials of
the American Federation of State, County and Municipal Employees
(AFSCME).
Communities United has opened 12 "resource centers" to supply "middle
class voters" with information about their particular issues. All 12
centers are in the relatively small number of competitive congressional
districts targeted by the Democratic Party in the coming election. In
11 cases, the Democratic candidates have already been funded by the
AFSCME PAC.4
What first appears to be grass roots lobbying program begins to also
look like an electoral effort if one takes account of the targeting of
particular districts and collateral efforts by a related elections
organization. The websites of some other 501(c) advocacy groups that
have been active in recent federal elections such as the National Rifle
Association, indicate that they are gearing up as well.

Joining in, and enhancing, the Democratic-oriented groups'
electoral effort is a new private firm, Data Warehouse, a Limited
Liability Corporation. This company is directed by Harold Ickes, a
former head of the main Democratic 527s in 2004, ACT and Media Fund,
and longtime top Democratic Party strategist. Data Warehouse receives
support from its primary financier, who was the top donor to 527s in
2004, George Soros and other large investors associated with the
"Democracy Alliance," a wealthy donors' cooperative that finances
Democratic-oriented think tanks and advocacy efforts.5 Ickes stated6
that his firm has a $10 million spending budget for
2006 (and $8.5 million for 2007) to supply information to a wide range
of "progressive" Democratic organizations from a sophisticated national
voter file, including e-mail addresses, historical voting and
commercial data. The company's budgetary costs are to be met by a
combination of its private capital contributions and nonprofit customer
"user fees"; the latter are not projected to be sufficient to enable
the organization to operate at a profit until 2010. Thus large private
investment funds are essential to help pay, on an ongoing basis, for
the provision of voter files to the customers, which include 527s,
501(c)s and PACs. Among the clients specifically noted by Ickes were
SEIU, AFL-CIO, League of Conservation Voters and Sierra Club.
Data Warehouse leases facilities to and is co-located in the same
office suite as America Votes Inc. and America Votes 2006, the two 527
organizations that are coordinating voter mobilization by the main
Democratic-oriented interest groups in 2006. Soros has also donated
$1,490,000 to these organizations. America Votes has also paid Data
Warehouse $125,000 to subscribe to its service. This innovative joining
together of private investment, party expertise and the coordinated
operations of nonprofit interest group 527s, 501(c)s and PACs could
mark yet another frontier of undisclosed but effective campaign
fundraising.

The Campaign Finance Institute is a non-partisan, non-profit institute affiliated with the George Washington
University that conducts objective research and education, empanels task forces and makes recommendations for
policy change in the field of campaign finance. Statements of the Campaign Finance Institute and its Task
Forces do not necessarily reflect the views of CFI's Trustees or financial supporters.